{"id":2408,"date":"2022-03-02T01:29:55","date_gmt":"2022-03-02T01:29:55","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2408"},"modified":"2025-07-02T00:41:45","modified_gmt":"2025-07-01T23:41:45","slug":"benefits-options-pool","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/benefits-options-pool\/","title":{"rendered":"Benefits of Options Pools in the UK"},"content":{"rendered":"

If you own a private company and want to implement an employee share scheme (ESS), you must consider how it will impact your ownership rights. This article will explain the concept of an options pool in ESSs and the critical legal and commercial implications.<\/span><\/p>\n

Overview<\/h2>\n

Employee share schemes (ESSs) incentivise current and future employees because it aligns the company’s interests with the employees’. If your company gives its employees the option to acquire shares, they become part-owners and can share in its profits.\u00a0<\/span><\/p>\n

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In other words, allowing your employees to acquire shares guarantees their right to enjoy a portion of the company’s profits.<\/span><\/p>\n<\/div>\n

However, you should understand the other rights attached, including the right to vote on shareholder resolutions. In principle, you may not object to this. After all, you want them to have effective ownership, and the right to vote on shareholder resolutions is fundamental. Despite this, you should consider that extending shares to your employees may dilute your share of ownership in the company.\u00a0<\/span><\/p>\n

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For instance, what will your position be if you have issued 25% or more of new shares in your company? If these shares contain voting rights, your employees could vote against any special resolution, which often contain fundamental company matters. For instance, any measure to amend the company’s articles of association is considered a special resolution.<\/span><\/p>\n<\/div>\n

Therefore, many businesses who wish to limit the dilution effect of an ESS use options pools.\u00a0<\/span><\/p>\n

Options Pools<\/h2>\n

There is no legal definition of an options pool in the UK. However, it is a phrase used by business owners and investors to describe a particular feature of specific ESS structures, such as enterprise management incentives (EMI), limiting the total number of shares issued to employees.\u00a0<\/span><\/p>\n

Example<\/h3>\n
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Let us say you and two business partners founded a company and issued yourself 100,000 shares each.\u00a0<\/span><\/p>\n

After a few years of hard work and growth, you want to bring on some additional talent. You research the market and determine that the going rate for the five positions you are hiring for are relatively competitive.\u00a0\u00a0<\/span><\/p>\n

To attract top talent, you decide to create an ESS on top of a competitive salary and cash bonus scheme.<\/span><\/p>\n

However, you do not want the total number of shares held by your employees to exceed 15% of the shares you hold.\u00a0<\/span><\/p>\n

Therefore you decide that employees under the ESS will only be entitled to a maximum of 10% of all ordinary shares to prevent them from diluting your ownership.\u00a0<\/span><\/p>\n<\/div>\n

This is an example of an options pool. Importantly, you do not have to actually issue the shares.\u00a0\u00a0<\/span><\/p>\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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